The gap between VIX futures and the VIX index has been moving into unchartered territory. The spread between the front month VIX futures and the index has hit a record level. The trade that should work in this situation is to go long March calls and puts, delta hedge the options, and short the March VIX future’s contract vega neutral. A bit difficult to implement, which is probably why the spread persists – along with the fact that traders and investors are getting long volatility through the futures market in anticipation of a possible market correction.
Record spread
